Barclays Bank of Botswana this week released its 2017 financial year report which indicates that the company has outperformed expectations considering unfavourable trading circumstances such as lacklustre economic conditions, interest rates reductions and closure of some major corporate clientele in 2016.
Figures contained in the annual report indicate that the company collected profit before tax of P558 million, which reflects a satisfactory 13% increase compared to that of 2016. Financial highlights also mirror an increase in net fee and commission income of 9%, a 14% increase in loans and advance while credit impairments dropped by a respectable 45% year-on-year .Cost-to-income ratio remained controlled at 52%. The bank has delivered a steady return on equity of 22% and declared a stellar dividend growth of 12%.
Chairman of Barclays Board, Oduetse A. Motshidisi observed that 2017 was a difficult trading period for the banking sector due to slow economic growth. “This phenomenon was present not just in Botswana, but in the region and to some extent even globally,” he said, also noting that interest rate reductions in October 2017, following on another in August 2016 resulted in margin compression and impacted the bank’s earnings negatively. Motshidisi also noted that the liquidation of one of Barclay’s major clients reduced the bank’s Corporate and Investment Banking asset balance sheet by P1 billion in the previous year. “This unexpected shortfall had to be filled in 2017.”
The Board Chairman also reiterated that the retail banking sector realized suppressed personal incomes since several years back, resulting in a number of businesses forced to close their operations in 2016 and 2017, which constrained people’s ability to access banking facilities. “The effects of this situation were felt in the 2017 financial year.”
Motshidisi however underscored that Barclays Bank of Botswana’s strategy, in the context of the current conditions, has been a broad-based one, and entailed extracting as much return as possible out of its Retail and Business Banking as well as Corporate and Investment Banking divisions. “The Bank has managed to significantly grow profit before tax, contain costs and nearly halved credit impairments, delivering sound return on equity.”
The Chief Executive Officer of Barclays Botswana Reinnet Van der Merwe highlights in the report that the company’s total income remained flat mainly due to low economic growth as well as margin compression caused by interest rate cuts in August 2016 and October 2017. “Our trading activities were also negatively affected by reduced overall corporate margins, which were competitor-driven.”
Van der Merwe noted that the reduction of credit impairments by 45% from the 2017 figures was commendable. She explained that it was largely driven by the bank’s revised collections model and enhanced collections strategies. “Our costs remained well contained registering a 4% year-on-year growth. This was in line with our continued focus on managing costs through various control programmes and rationalization activities.”
Mumba Kalifungwa, Finance Director at Barclays deliberated further on the finical performance of the company for the period under review saying the full-year results demonstrate Barclays’ commitment to delivering on the five-year strategy, as well as contribution to various economic sectors through credit extension and the provision of a variety of payment solutions. “Our performance continues to be driven by positive momentum in our key business segments, which all achieved positive results, the competitive environment in which we operate remains challenging due to slow economic growth. The banking sector as a whole continues to be faced with challenges such as financially stressed consumers and the closure of companies, in the process impacting impairments,” he said
He further added that net interest income was impacted severely by the two interest rate cuts and therefore remained fairly flat, showing a decrease of 1% year-on-year. “Nevertheless, we continued to show resilience as a business and drove credit growth in our chosen segments of operation.”
Barclays Bank Executive observe that growing non-interest income remains critical to the company strategy, reiterating that the bank will continue to focus in that area in a bid to expand its income base. “We will also continue to control costs and manage impairments in 2018, through selective credit processes and collections strategy. Our balance sheet remains solid, albeit largely flat, at P15 billion, with strong liquidity and capital levels.”
The Bank Chief Finance Executive added that Barclay’s regulatory liquid asset ratio remains well above the requirement of 10%, at 15.49%. The annual report states that the Bank’s balance sheet was driven by customer assets and liabilities, with a 14% year-on-year growth in loans, mainly in corporate business while the company liabilities decreased by 2% to P10.98 billion.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”